The Impact Loyalty Programs Can Have on eCommerce Businesses

The Impact Loyalty Programs Can Have on eCommerce Businesses

Plain and simple, in order to have a successful business, companies need to have a solid customer base and a good product. Companies should strive for customer satisfaction and continued customer engagement because loyal customers spend more money with brands they like. According to a recent study, 78% of loyal customers are willing to spread the word to their friends and family, and 92% of people prefer suggestions from their friends and family over traditional advertisements. In short, companies should incentivize or reward their loyal customers, and one major way to make this happen is with loyalty programs.

The Basics and Advantages of Customer Loyalty Programs

A customer loyalty program helps create or maintain customer loyalty by providing rewards or incentives to customers that frequently purchase a business’s products and services. Rewards from a loyalty program can be discounts, free products, coupons, and access to future products prior to the main lease. 

One of the biggest advantages of a loyalty program is customer retention. According to Invesp Consulting, existing customers are 50% more likely to try new products and spend 31% more compared to new customers. Loyalty programs should focus on existing customers, and not new customers. Costco has a motto, “Loyal customers who buy repeatedly are more profitable than ones that buy once.” This is a great motto for companies to live by as it costs 5x less to retain customers than acquire new ones.

Now, this doesn’t mean a loyalty program can’t attract new customers. Loyalty programs’ main purpose should be to retain existing customers and increase sales/repeat orders, but a program can certainly be used as a benefit to attract new customers and convert them to repeat customers. In addition to building out a loyalty program to existing and new customers, over time, companies can utilize the data collected from the program to determine ways to make the least profitable customers more profitable, increasing overall customer lifetime values, and finally increasing the overall company revenue. A few other advantages of a loyalty program outside of customer retention:

  • Customer lifetime value. When companies increase the recurrence of customers shopping with the brand, companies will in turn increase the lifetime value of their customer.
  • The customer ladder. A loyalty program will move customers up the ladder, meaning that new customers can turn into repeat customers and those repeat customers will spend more often with that business.
  • Re-engage old customers. Loyalty programs can show the customers that spend the least and can target & market to those specific customers to come back and shop. For example, have you ever seen a promotion in your inbox from a company that says, “We miss you. Here’s 15% off on us.” This is determined by data analyzed on the last time you were on the website and purchased a product. Chances are if you receive a promotion or discount, customers will come back and shop.
  • Bring on the competition. If a company has a solid loyalty program, competitors will have a hard time trying to grab existing customers attention to try their products.
  • Reduce marketing costs. As mention previously, companies should focus the loyalty programs on existing clients, rather than new clients. When companies determine who their best customers are, they can target their marketing efforts to bring in new clientele that fit or mold into the “best customer” base, which in turn would probably turn into existing customers.

So how do companies get started with loyalty programs? There are a few different types of programs that your business can try. It’s important to analyze which programs would work best for your audience based on your size and industry (in other words, a loyalty program isn’t a one-size-fits-all approach). Below explains the three most popular types of loyalty programs:

  1. Earn Points for Every Purchase

The most common loyalty program is where customers earns points for every purchase. Companies should make sure that the program is simple and easy to understand, for example, 1 point should equivalate to each dollar spent. So, if a customer spends $100 dollars, they would be rewarded 100 points. Companies should also make sure that these rewards are easy to use and it doesn’t take up to 10,000 points to redeem their reward – that’s how companies lose customers.

Take Sephora’s Beauty Insider Program – when you go to check out, the customer can either give Sephora their phone number tied to their account or swipe the loyalty card given to the customer when they sign up for the program. Each purchase is tracked and the amount of money that was spent is recorded, with each dollar, purchase equals one point. In turn, these points can be redeemed for new beauty products.

  • Social Media Loyalty Program

Another loyalty program businesses use involves leveraging the power of social media. For example, when a loyalty program is integrated with a strong social media platform such as Instagram, companies can gain a substantial number of followers.

Take an online boutique store for example. They can tell their clients to tag the business in an Instagram post with the outfit that was purchased from the boutique store in order to be entered to win $500 towards the store. From that one post, the boutique store can gain followers from Instagram posts and videos around their merchandise. A brand that doesn’t connect with their audience, in the world of social media, has a direct impact on brand sustainability, with low recall value and hardships with creating a reliable brand image. Doing social media promotion/rewards is a great way to retain customers, and also a way to have customer engagement in a virtual presence. This also strengthens the bond between the brand and its customers.

  • Reward Your Existing Customers

Discounts and coupons to existing customers have proven to be a great tactic for customer loyalty programs. According to Expedia, 61% of consumers actively use discounts and coupons given to them by a company regularly. In addition, companies can create a “VIP” loyalty program, where customers can pay a flat fee a year for two-day shipping (hello, Amazon Prime!) and special discounts. With e-Commerce, companies should consider partnering up with a third party to help fulfill the shipping promises with loyal VIP members.

Third-party companies like Deliverr let companies easily fulfill marketplace and shopping cart orders at a speedy rate. So, when companies leverage “Free 2 Day Shipping”, Deliverr will deliver (no pun intended) to the customer in the time promised.  Companies can please clients with fast, reliable, predictable, and affordable order fulfillment, especially to keep those customers loyal.

The Takeaway

Loyalty programs are the cherry on top of successful companies, with many ways to entertain existing and new clients. Consider adding a loyalty program to your company to increase sales, retain clients, and satisfy new clients.